IRS Highlights Important 2016 Tax Changes

IRS Highlights Important 2016 Tax Changes

In Fact Sheet 2017-1, the IRS has highlighted some of the important 2016 tax changes that affect the current filing season. These include:

Three extra days to file and pay. Taxpayers will have until Tuesday, April 18, 2017, to file their 2016 individual income tax returns and pay any taxes due because of the combined impact of the weekend and a holiday in the District of Columbia (which by law impacts tax deadlines for everyone in the same way federal holidays do). Individual income tax taxpayers requesting an extension will have until Monday, October 16, 2017, to file.

Refunds delayed for some taxpayers. A law change that went into effect this year requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until at least February 15, 2017. Because of additional delays, many early filers will still not have actual access to their refunds until at least the week of February 27. Under the law change, the IRS must delay the entire refund—even the portion not associated with the EITC and ACTC. IRS advises that the fastest way to get a refund is to file electronically and choose direct deposit.

Renew ITIN soon to avoid refund delays. Many Individual Taxpayer Identification Numbers (ITINs) expired on January 1, 2017, and affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed. Prompt action is advisable because it can take up to 11 weeks to process a complete and accurate ITIN renewal application. An ITIN is used by anyone who has tax-filing or payment obligations under U.S. law but is not eligible for a Social Security number. Under a law change, any ITIN not used on a tax return at least once in the past three years expires. Also now expired is any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN).

Olympic metals and prize money now tax-free for most Olympians. Starting in 2016, Olympic and Paralympic winners with adjusted gross income (AGI) of $1 million or less ($500,000 or less, if married filing separately) aren’t taxed on the value of Olympic and Paralympic metals and the amount of U. S. Olympic Committee (USOC) prize money.

ABLE accounts now available for some people with disabilities. States are now offering specially designed, tax-favored ABLE accounts to people with disabilities who became disabled before age 26. ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses. Contributions totaling up to the annual gift tax exclusion amount ($14,000 in both 2016 and 2017) can generally be made to an ABLE account each year. Though contributions are not deductible, distributions are tax-free if used to pay qualified disability expenses. These special accounts first became widely available during 2016.

Standard mileage rates revised. The standard mileage rates for the use of a car, van, pickup or panel truck are: 54 cents per mile for business miles driven in 2016 (down from 57.5 cents in 2015); 19 cents per mile driven for medical or moving purposes in 2016 (down from 23 cents in 2015); and 14 cents per mile driven in service of charitable organizations.

New self-certification available for missed rollover deadline. Beginning Aug. 24, 2016, a taxpayer who inadvertently fails to properly complete a tax-free rollover of a distribution from an IRA or workplace retirement plan to another eligible retirement program can often qualify to use a new self-certification procedure. Under the procedure, eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. Circumstances include: a distribution check that was misplaced and never cashed, the taxpayer’s home was severely damaged, a family member died, the taxpayer or a family member was seriously ill, the taxpayer was incarcerated, or restrictions were imposed by a foreign country. Even if a taxpayer does not self-certify, IRS now has the authority to grant a waiver during a subsequent examination.

New deadline for reporting foreign accounts. The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by Apr. 18, 2017. FinCEN will grant filers missing the April 18 deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016.